SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934
For the transition period from ________ to _________
Commission File No. 0-692
NORTHWESTERN CORPORATION
(formerly known as NORTHWESTERN PUBLIC SERVICE COMPANY)
Delaware 46-0172280
(State of Incorporation) (IRS Employer Identification No.)
33 Third Street SE
Huron, South Dakota 57350-1605
(Address of principal office) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (D) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Common Stock, Par Value $1.75
17,862,390 shares outstanding at August 7, 1998
Company-Obligated Mandatorily Redeemable
Preferred Securities
of Subsidiary Trust, Liquidation Amount $25.00
1,300,000 shares outstanding at August 7, 1998
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997..............................
Consolidated Statements of Income -
Three months and six months ended
June 30, 1998 and 1997............................................
Consolidated Statements of Cash Flows
Six months ended
June 30, 1998 and 1997............................................
Notes to Consolidated Financial Statements...........................
Management's Discussion of Financial Condition and Results of
Operations........................................................
PART II. OTHER INFORMATION
SIGNATURE..............................................................
NORTHWESTERN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
June 30, December 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,867 $ 14,309
Trade accounts receivable, net 67,845 90,749
Inventories 30,382 36,015
Other 13,131 15,335
--------- --------
121,225 156,408
--------- --------
PLANT AND EQUIPMENT:
Electric 359,227 356,836
Natural gas 87,981 85,874
Propane 289,753 275,911
Manufacturing 2,332 2,270
---------- ---------
739,293 720,891
Less Accumulated depreciation (184,619) (175,269)
---------- ---------
554,674 545,622
---------- ---------
OTHER ASSETS:
Investments 168,196 121,587
Deferred charges and other 68,242 58,435
Goodwill and other intangibles, net 227,709 224,071
--------- --------
464,147 404,093
--------- --------
$ 1,140,046 $ 1,106,123
========== ==========
CAPITALIZATION AND LIABILITIES
CURRENT LIABILITIES:
Commercial Paper Borrowing $ 23,000 $ -
Short-term borrowings 34,021 -
Long-term debt due within one year 9,370 7,814
Accounts payable 56,309 89,064
Accrued expenses 14,870 12,899
Other 37,212 34,787
--------- --------
174,782 144,564
--------- ---------
DEFERRED CREDITS:
Accumulated deferred income taxes 71,015 72,884
Unammortized investment tax credits 8,620 8,901
Other 49,955 51,925
--------- ---------
129,590 133,710
--------- ---------
CAPITALIZATION:
Common stock equity 169,676 166,596
Nonredeemable cumulative preferred stock 2,600 2,600
Redeemable cumulative preferred stock 1,150 1,150
Company obligated mandatorily redeemable security
of trust holding solely parent debentures 32,500 32,500
Long term debt 156,350 156,350
--------- ---------
362,276 359,196
Minority interest in subsidiaries 233,716 199,722
Long-term debt of subsidiaries 239,682 268,931
--------- ---------
835,674 827,849
--------- ---------
$ 1,140,046 $ 1,106,123
========== =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<TABLE>
<CAPTION>
NORTHWESTERN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Six Months
Ended Ended
June 30 June 30
------------ ----------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
OPERATING REVENUES ------ ----- ----- -----
Propane $144,891 $128,571 $374,222 $349,325
Electric 18,589 17,230 37,552 37,649
Natural gas 14,847 14,206 44,868 51,597
Manufacturing 5,725 5,444 11,608 11,286
------- ------- ------- -------
184,052 165,451 468,250 449,857
------- ------- ------- -------
OPERATING EXPENSES
Propane costs 118,622 108,423 297,984 286,587
Fuel and purchased power 3,792 2,576 7,608 7,144
Purchased natural gas sold 10,176 9,680 32,473 37,724
Manufacturing cost of goods sold 3,568 3,384 7,243 7,021
Other operating expenses 32,999 26,065 67,153 57,562
Maintenance 1,325 1,747 2,675 3,233
Depreciation and amortization 8,454 7,354 16,968 14,687
Property and other taxes 1,563 1,725 3,259 3,470
-------- ------- ------- -------
180,499 160,954 435,363 417,428
-------- ------- ------- -------
OPERATING INCOME
Propane (2,810) (2,620) 16,972 12,487
Electric 5,497 5,851 11,186 12,835
Natural gas 565 824 4,063 6,319
Manufacturing 301 442 666 788
-------- ------- ------ ------
3,553 4,497 32,887 32,429
-------- ------- ------ ------
Interest Expense, net (7,622) (7,960) (15,298) (15,870)
Investment Income and Other 2,680 2,485 6,063 4,154
-------- ------- ------- -------
Income Before Income Taxes and
Minority Interest (1,389) (978) 23,652 20,713
Provision for Income Taxes (490) (738) (4,966) (5,871)
-------- ------- ------ --------
Income Before Minority Interest (1,879) (1,716) 18,686 14,842
Minority Interest 5,234 4,874 (4,327) (1,161)
-------- ------- ------- -------
Net Income 3,355 3,158 14,359 13,681
Minority Interest on Preferred
Securities of Subsidiary Trust (660) (600) (1,320) (1,320)
Dividends on Preferred Stock (48) (48) (96) (117)
-------- ------- ------- -------
Earnings on Common Stock $ 2,647 $ 2,450 $ 12,943 $ 12,244
====== ====== ======= =======
Average Shares Outstanding 17,843 17,843 17,843 17,842
====== ====== ====== ======
Basic and Diluted Earnings per
Common Share $0.15 $0.14 $0.73 $0.69
====== ====== ====== ======
Dividends Declared Per Common Share $0.24 $0.23 $0.48 $0.46
====== ====== ====== ======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
NORTHWESTERN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months
Ended
June 30
----------------------
1998 1997
------- -------
OPERATING ACTIVITIES:
Net Income $ 14,359 $ 13,681
Items not affecting cash:
Depreciation and amortization 16,968 14,687
Deferred income taxes (1,216) (428)
Minority interest in net income of
consolidated subsidiaries 4,327 1,161
Investment tax credits (281) (281)
Changes in current assets and
liabilities, net:
Accounts receivable 22,875 39,486
Inventories 5,588 16,416
Other current assets 2,204 6,757
Accounts payable (33,102) (47,827)
Accrued expenses 1,971 (872)
Other current liabilities 2,434 (6,932)
Other, net (2,938) (4,676)
--------- ---------
Cash flows provided by operating
activities 33,189 31,172
--------- ---------
INVESTING ACTIVITIES:
Property additions (7,697) (8,196)
Sale (Purchase) of noncurrent
investments, net (58,278) 21,003
Subsidiary acquisitions and growth expenditures (16,401) (20,216)
--------- ---------
Cash flows used in investing activities (82,376) (7,409)
--------- ---------
FINANCING ACTIVITIES:
Dividends on common and preferred stock (8,750) (8,325)
Subsidiary payment of common unit
distributions (14,213) (6,354)
Minority interest on preferred
securities of subsidiary trust (1,320) (1,320)
Redemption of preferred stock of
subsidiary - (2,687)
Repayment of nonrecourse subsidiary
long-term debt (28,693) (7,544)
Repayment of long-term debt - (7,500)
Proceeds from subsidiary secondary
offering 40,700 -
Short-term borrowings 34,021
Commercial paper issuance proceeds 23,000
--------- ---------
Cash flows provided by (used in)
financing activities 44,745 (33,730)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (4,442) (9,967)
Cash and Cash Equivalents, beginning of period 14,309 36,790
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 9,867 $ 26,823
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 4,206 $ 8,698
Interest $ 7,618 $ 15,720
The accompanying notes to consolidated financial statements are an integral
part of these statements.
NORTHWESTERN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998 and 1997
(Reference is made to Notes to Financial Statements included in the Company's
Annual Report)
(1) Management's Statement -
Northwestern Corporation (the Company) has prepared the financial
statements included herein, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
Company, all adjustments necessary for a fair presentation of the results of
operations for the interim periods have been included. It is suggested that
these financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest annual report to
stockholders.
(2) Subsidiaries and Principles of Consolidation -
The accompanying consolidated financial statements include the accounts of
the Company and all wholly and majority owned or controlled subsidiaries. All
significant inter-company balances and transactions have been eliminated from
the consolidated financial statements.
(3) Comprehensive Income -
During June 1997, the Financial Accounting Standards Board released SFAS
No. 130, 'Reporting Comprehensive Income,' effective for fiscal year beginning
after December 15, 1997. SFAS No. 130 established standards for reporting and
display in the financial statements of total net income and components of all
other non-owner changes in equity, referred to as comprehensive income. The
Company's comprehensive income was not materially different from reported net
income for the three months and six months ended June 30, 1998 and 1997.
(4) Certain 1997 amounts have been reclassified to conform to the 1998
presentation. Such reclassifications had no impact on net income and common
stock equity as previously reported.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Northwestern Corporation is a service and solutions company providing
diversified energy, telecommunications and related services. A division of the
Company is engaged in the regulated energy business of production, purchase,
transmission, distribution and sale of electricity and the delivery of natural
gas. The Company generates and distributes electric energy to 56,000 customers
in eastern South Dakota. It also purchases and distributes natural gas to
79,000 customers in eastern South Dakota and central Nebraska. To provide
base load electric power, the Company jointly owns three coal-fired generating
plants with other utilities. Through Cornerstone Propane Partners, L.P.
(Cornerstone), the Company is engaged in retail and wholesale propane
distribution business located throughout the United States. Cornerstone is a
publicly traded Delaware limited partnership, formed to acquire and operate
propane businesses and assets. A wholly owned subsidiary of the Company serves
as the general partner of Cornerstone and manages and operates Cornerstone's
business. In January 1998 Cornerstone sold an aggregate of 1,960,000 Common
Units at $22.125 per unit pursuant to an unwritten public offering. Net
proceeds were approximately $40.7 million. Cornerstone used approximately
$10.0 million of the net proceeds for general business purposes and the balance
to repay amounts outstanding under a credit facility. The Company owns as of
June 30, 1998, a combined 33.3% interest in Cornerstone after considering the
secondary offering of additional common units sold in January 1998. The
Company's manufacturing operations are comprised of Lucht Inc., a wholly owned
subsidiary that develops, manufactures and markets multi-image photographic
printers and other related equipment. In 1997, the Company formed ServiCenter,
USA to acquire heating, ventilating, air conditioning, and plumbing and
related services companies in the U.S. The Company also formed Communication
Systems USA to acquire and consolidate companies providing telecommunications
and data services to business customers.
Weather
Weather patterns have a material impact on the Company's operating
performance for all three segments of its energy business. This impact is
particularly relevant for natural gas and propane. Because propane and natural
gas are heavily used for residential and commercial heating, the demand for
these products depends heavily upon weather patterns throughout the Company's
market areas. With a larger proportion of its operations related to seasonal
propane and natural gas sales, a significantly greater portion of the Company's
operating income is recognized in the first and fourth quarters related to
higher revenues from the heating season.
RESULTS OF OPERATIONS:
Consolidated Earnings Comparisons -
Earnings per share for the quarters ended June 30, 1998 and 1997, were
$.15 and $.14. The increase in earnings was due to increased investment
income.
Earnings per share for the year to date through June 30 , 1998, was $.73
compared to $.69 for the six months ended June 30, 1997. The increase in
earnings was due to operating income from the propane operations resulting from
acquired retail propane distribution centers and increased investment income
partially offset by weather which negatively impacted the company's propane,
natural gas and electric operations.
Propane -
Operating revenues from propane for the three months ended June 30
increased 13% from $128.6 million in 1997 to $144.9 million in 1998. Gross
margins increased from $20.1 million in 1997 to $26.3 million in 1998. Retail
gallons also increased from 30.6 million in 1997 to 35.2 million in 1998. The
increases are due to the acquisition of retail propane distributors in 1997 and
internal growth. The majority of propane revenues and operating income occur in
the first and fourth quarters when propane is heavily sold for residential and
commercial heating as compared to the second and third quarter's which
traditionally are operating loss periods in the industry.
Operating revenues from propane for the six months ended June 30 increased
from $349.3 million in 1997 to $ 374.2 in 1998. Gallons also increased from
255.8 million 1997 to 377.0 million in 1998, due to acquisitions and internal
growth. The propane operations in 1998 have been negatively affected by
weather that has been substantially warmer than normal.
Electric -
Retail electric revenues increased slightly from $16.1 million to $16.2
million while retail volumes increased by 3% for the three months ended
June 30 as compared to the same period of the prior year. Electric gross
margins increased 1% from $14.6 million to $14.8 million as compared to the
prior year. The increase is a result of the increase in cooling degree weather
as compared to the same period of the prior year.
Retail electric revenues increased by 5% while the retail volumes
decreased 1%. for the six months ended June 30 as compared to the same period
of the prior year. Electric operations were negatively impacted by heating
degree day weather which was 11% warmer than normal and 18% warmer as compared
to the same period of the prior year partially offset by cooling degree weather
which was slightly better as compared to the same period of the prior year.
Natural Gas -
Natural gas revenues increased by 4% from $14.2 million to $14.8 million
while volumes decreased by 7% for the three months ended June 30 as compared to
the prior year. Gross margins increased 3% from $4.5 million to $4.7 million.
The increase in revenues and margins is the result of the gas supply transition
obligation purchased in 1997.
Natural gas revenues decreased by 15% from $51.6 million to $44.9 million
and volumes decreased by 12% for the six months ended June 30. Gross margins
decreased 11%. Natural gas operations were negatively impacted significantly
by weather which was both warmer than normal and warmer as compared to the same
quarter of the prior year.
Manufacturing -
Stronger quarterly sales activity produced slightly higher revenues for
the second quarter and the year to date as compared to 1997. Revenues for the
three months ended June 30 increased 5% from $5.4 million to $5.7 million and
gross margins increased 5% from $2.1 million to $2.2 million compared to the
same period of the prior year. Revenues for the six months ended June 30
increased 2% from $11.3 million to $11.6 million and gross margins increased
slightly from $4.3 million to $4.4 million compared to the same period of the
prior year due to increased sales of higher margin items.
Operating Expenses and Other Income Statement Items -
Other operating expenses for both the three months and six months ended
June 30 increased in 1998 as compared to 1997 primarily due to the acquisitions
of retail propane distribution centers in 1997. Investment and other income
increased during the six months ended June 30 due to higher investment income
in 1998 as compared to 1997 principally due to the Company's increased
preferred stock investments in ServiCenter and Communication Systems and the
sale of investments. The increase in depreciation reflects the increase in
depreciable propane assets when compared to the same periods of the prior
year. The decrease in interest expense is primarily related to the redemption
of the 8.9% series general mortgage bonds of $7.5 million in March 1997 and
the redemption of the 8.824% series general mortgage bonds of $15 million in
July 1997. Income taxes decreased because of tax preference items and
increased minority interest.
Liquidity and Capital Resources -
The Company has a high degree of long-term liquidity through the
generation of operating cash flows, the availability of substantial
marketable securities, and a sound capital structure. In addition, the
Company has adequate capacity for additional financing and has maintained its
liquidity position through favorable bond ratings. The Company has generated
significant operating cash flows while continuing to maintain substantial
cash and investment balances in the form of marketable securities. Cash flows
from operating activities during the six months ended June 30, 1998 and 1997
were $33.2 million and $31.2 million. The increase is primarily due to
increased cash flow from propane operations. Cash equivalents and investment
securities totaled $52.8 million and $134.6 million at June 30, 1998 and 1997.
In March 1997 the Company retired early the $7.5 million outstanding of the
8.9% series general mortgage bonds. In July 1997 the company retired early
the $15 million outstanding of the 8.824% series general mortgage bonds.
Lines of credit also provide working and growth capital and other financial
resources. In addition, lines of credit are used to support commercial paper
borrowings, a primary source of short-term working capital financing. At June
30, 1998, available short term lines of credit totaled $68 million. In
addition, the Company's nonregulated subsidiaries maintain nonrecourse credit
agreements with various banks for revolving and term loans.
Capital Requirements -
The Company's primary capital requirements include the funding of its
energy business construction, maintenance and expansion programs, the funding
of debt and preferred stock retirements, sinking fund requirements and the
funding of its corporate development and investment activities. The emphasis
of the Company's construction activities is to undertake those projects that
most efficiently serve the expanding needs of its customer base, enhance energy
delivery and reliability capabilities through system replacement and provide
for the reliability of energy supply. Capital expenditure plans are subject
to continual review and may be revised as a result of changing economic
conditions, variations in sales, environmental requirements, investment
opportunities and other ongoing considerations. Expenditures for maintenance
construction activities during the six months ended June 30, 1998 and 1997 were
$7.7 and $8.2 million. Included in such construction activities were
nonregulated maintenance capital expenditures of $1.2 million and $.6 million
during the six months ended June 30, 1998 and 1997. Capital expenditures for
1998, excluding propane, are estimated to be $13.8 million with a large portion
of expenditures to be spent on enhancements of the electric and natural gas
distribution systems. Electric and natural gas related capital expenditures
for the years 1998 through 2002 are estimated to be $61.5 million.
Nonregulated maintenance capital expenditures for 1998 are estimated to be $3.8
million. Estimated nonregulated maintenance capital expenditures for the years
1998 through 2002 are estimated to be $19.0 million. Capital requirements for
the mandatory retirement of long-term debt including nonrecourse debt of
subsidiaries will be $7.8 million in 1999, $8.9 million in 2000, $8.5 million
in 2001, and $8.3 million in 2002. The Company anticipates that existing
investments and marketable securities, internally generated cash flows and
available external financing will meet future capital requirements.
At June 30, 1998, the Company had invested $94.3 million in
ServiCenter, USA and Communication Systems, USA. The Company will continue to
make investments in these unconsolidated affiliates. Also, the Company may
make other significant acquisition investments in related industries that
would require the Company to raise additional equity and incur debt financing,
which are therefore subject to certain risks and uncertainties. The Company's
financial coverage's are at levels in excess of those required for the issuance
of additional debt and preferred stock. The Company will continue to review
economics of retiring or refunding remaining long-term debt and preferred stock
to minimize long-term financing costs.
Competition and Business Risk -
Northwestern's strategy centers upon the development, acquisition and
expansions of operations offering integrated energy, telecommunications, and
related products and services within the Northwestern companies. In addition
to maintaining a strong competitive position in electric, natural gas and
propane distribution businesses, the Company intends to pursue development
and acquisitions that have long-term growth potential. While such investments
and acquisitions can involve risk in comparison to the Company's energy
distribution businesses, they offer the potential to enhance investment
returns.
PROPANE
Weather conditions have a significant impact on propane demand for both
heating and agricultural purposes. The majority of Cornerstone's customers
rely heavily on propane as a heating fuel. Actual weather conditions can vary
substantially from year to year, significantly affecting Cornerstone's
financial performance. Furthermore, variations in weather in one or more
regions in which Cornerstone operates can significantly affect the total
volumes sold by Cornerstone and the margins realized on such sales and,
consequently, Cornerstone's results of operations. These conditions may also
impact Cornerstone's ability to meet various debt covenant requirements and
affect Cornerstone's ability to pay common and subordinated unit distributions.
The retail propane business is a margin-based business in which gross
profits depend on the excess of sales prices over propane supply costs.
Consequently, Cornerstone's profitability will be sensitive to changes in
wholesale propane prices. Propane is a commodity, the market price of which
can be subject to volatile changes in response to changes in supply or other
market conditions. As it may not be possible to immediately pass on to
customers' rapid increases in wholesale cost of propane, such increases could
reduce Cornerstone's gross profits.
Cornerstone's profitability is affected by the competition for customers
among all participants in the retail propane business. Some of Cornerstone's
competitors are larger or have greater financial resources than Cornerstone.
Should a competitor attempt to increase market share by reducing prices,
Cornerstone's financial condition and results of operations could be materially
adversely affected. In addition, propane competes with other sources of
energy, some of which may be less costly per equivalent energy value.
ELECTRIC AND NATURAL GAS
Weather conditions have a significant impact on electric and natural
gas demand for heating and cooling purposes. Actual weather conditions can
vary substantially from year to year, significantly affecting the Company's
financial performance.
The electric and natural gas industries continue to undergo numerous
transformations and the Company is operating in an increasingly competitive
marketplace. The FERC, which regulates interstate and wholesale electric
transmissions, opened up transmission grids and mandated that utilities must
allow others equal access to utility transmission systems. Various state
regulatory bodies are supporting initiatives to redefine the electric energy
market and are experimenting with retail wheeling, which gives some retail
customers the ability to choose their supplier of electricity. Traditionally,
utilities have been vertically integrated, providing bundled energy services to
customers. The potential for continued unbundling of customer services exists,
allowing customers to buy their own electricity and natural gas on the open
market and having it delivered by the local utility.
The growing pace of competition in the energy industry has been a primary
focus of management over the last few years. The Company's future financial
performance will be dependent on the effective execution of operating
strategies to address a more competitive and changing energy marketplace.
Business strategies focus on enhancing the Company's competitive position, on
expanding energy sales and markets with new products and services for customers
and increasing shareholder value. The Company has realigned various areas of
its business to support customer services and marketing functions. A new
marketing plan, an expanded line of integrated customer products and services,
additional staff and new technologies are part of the Company's strategy for
providing responsive and superior customer service. To strengthen the
Company's competitive position, new technologies have and will be added that
enable employees to better serve customers. The Company is centralizing
activities to improve efficiency and customer responsiveness and business
processes are being reengineered to apply best-practices methodologies.
Long-term supply contracts have been renegotiated to lower customers' energy
costs and new alliances help reduce expenses and add innovative work
approaches.
As described in Note 1 to the consolidated financial statements, the
Company complies with the provision of Statement of Financial Accounting
Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of
Regulation." SFAS 71 provides for the financial reporting requirements of the
Company's regulated electric and natural gas operations which requires
specific accounting treatment of certain costs and expenses that are related
to the Company's regulated operations. Criteria that could give rise to the
discontinuance of SFAS 71 include 1) increasing competition that restricts
the Company's ability to establish prices to recover specific costs and 2) a
significant change in the manner in which rates are set by regulators from
cost-based regulation to another form of regulation. The Company
periodically reviews these criteria to ensure the continuing application of
SFAS 71 is appropriate. Based on a current evaluation of the various factors
and conditions that are expected to impact future cost recovery, the Company
believes that its regulatory assets, including those related to generation, are
probable of future recovery. This evaluation of recovery must be updated for
any change, which might occur in the Company's current regulatory environment.
HVAC, TELECOMMUNICATIONS AND RELATED SERVICES
The markets served by ServiCenter, USA for residential and commercial heating,
ventilating, air conditioning, plumbing and other related services are highly
competitive. The principal competitive factors in these segments of the
industry are 1) timeliness, reliability and quality of services provided, 2)
range of products and services provided, 3) name recognition and market share
and 4) pricing. Many of ServiCenter's competitors in the HVAC business are
small, owner-operated companies typically located and operated in a single
geographic area. There are only a small number of national companies engaged
in providing residential and commercial services in the service lines, which
the Company intends to focus. Future competition in both the residential and
commercial service lines may be encountered from other newly formed or existing
public or private service companies with aggressive acquisition programs, the
unregulated business segments of regulated gas and electric utilities or from
newly deregulated utilities in those industries entering into various service
areas.
The market served by Communications Systems USA in the telecommunications
and data services industry is also a highly competitive market. The Company
believes that 1) market acceptance of the Company's products and services, 2)
pending and future legislation affecting the telecommunications and data
industry, 3) name recognition and market share, 4) larger competitors and 5)
the Company's ability to provide integrated communication and data solutions
for customers in a dynamic industry are all factors that could affect the
Company's future operating results.
OTHER
The Company utilizes software and various technologies throughout its
business that will be affected by the date change in the year 2000. The
Company has assessed and is continuing to assess the impact of the year 2000
issue on its reporting systems and operations. The majority of the Company's
financial reporting and operational systems are year 2000 compliant. The cost
of the modifications of the remaining systems is not expected to be material.
With respect to the year 2000 issue, the Company's operations may also
be affected by other entities with which the Company transacts business.
The Company is currently unable to determine the potential adverse
consequences, if any, that could result from such entities failure to
effectively address this issue.
This report contains forward-looking statements within the meaning of the
securities laws. The Company cautions that, while it believes such statements
to be based on reasonable assumptions and makes such statements in good faith,
there can be no assurance that the actual results will not differ materially
from such assumptions or that the expectations set forth in the forward looking
statements derived from such assumptions will be realized. Investors should be
aware of important factors that could have a material impact on future results.
These factors include, but are not limited to, weather, the federal and state
regulatory environment, the economic climate, regional, commercial, industrial
and residential growth in the service territories served by the Company and its
subsidiaries, customers' usage patterns and preferences, the speed and degree
to which competition enters the Company's industries, the timing and extent of
changes in commodity prices, changing conditions in the capital and equity
markets and other uncertainties, all of which are difficult to predict and many
of which are beyond the control of the Company.
NORTHWESTERN CORPORATION
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any pending major litigation.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (SEC only)
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWESTERN CORPORATION
---------------------------------
(Registrant)
Date: August 14, 1998 /s/ David A. Monaghan
-----------------------------
Controller and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,867
<SECURITIES> 0
<RECEIVABLES> 67,845
<ALLOWANCES> 0
<INVENTORY> 30,382
<CURRENT-ASSETS> 13,131
<PP&E> 739,293
<DEPRECIATION> (184,619)
<TOTAL-ASSETS> 1,140,046
<CURRENT-LIABILITIES> 174,782
<BONDS> 396,032
<OTHER-SE> 169,676
<COMMON> 31,220
0
3,750
<TOTAL-LIABILITY-AND-EQUITY> 1,140,046
<SALES> 468,250
<TOTAL-REVENUES> 468,250
<CGS> 345,308
<TOTAL-COSTS> 345,308
<OTHER-EXPENSES> 90,055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,298
<INCOME-PRETAX> 19,325
<INCOME-TAX> 4,966
<INCOME-CONTINUING> 14,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,359
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
